China’s energy-storage sector braces for tough year amid trade war and policy shifts

[WORLD] China’s energy-storage industry is bracing for a turbulent year, as intensifying trade frictions with the United States and diminishing government backing weigh heavily on the sector. An industry association has urged caution against escalating price wars, warning of potential instability.

The pullback in subsidies follows a broader fiscal tightening campaign by Beijing aimed at addressing industrial overcapacity. Rapid expansion in sectors such as solar and energy storage has raised concerns over excess supply, prompting policy adjustments that have left smaller players exposed. Analysts foresee a wave of consolidation, as financially strained firms struggle to stay afloat.

These challenges come as global demand for energy-storage technologies softens, with key markets like Europe and North America contending with economic headwinds and evolving policy landscapes. Despite China’s status as the world’s leading battery storage producer, that dominance is increasingly being challenged by lower-cost competition from Southeast Asia and India.

Export prospects have also dimmed, with heightened U.S. tariffs threatening access to one of China’s largest markets. Consulting firm WaterRock Energy Economics forecasts a 10% to 20% cut in capital expenditure among domestic producers this year. As a result, annual deployment of battery energy-storage systems (BESS) may decline to just 30 gigawatts (GW), down from 42GW in 2024.

Compounding the difficulties, Chinese manufacturers are contending with tighter environmental regulations at home. New recycling mandates for lithium-ion batteries have driven up compliance costs, further squeezing margins already under pressure from falling global prices.

The tariff increases—expected to exceed 25% on some energy-storage components—are part of Washington’s broader push to reduce dependence on Chinese clean-tech imports. In response, some Chinese firms are reassessing their supply chains, considering joint ventures in countries such as Mexico and Vietnam to bypass trade barriers. However, insiders caution these efforts may not fully compensate for the loss of direct access to the U.S. market.

“We expect BESS prices will continue to fall in the local market this year,” said Zhang Liutong, director at WaterRock. “For exports, the BESS producers will need to cultivate non-US markets.”

In search of resilience, some companies are pivoting toward emerging battery technologies, including sodium-ion batteries, which use cheaper and more widely available raw materials. Although currently trailing lithium-ion batteries in energy density, these alternatives may gain traction in cost-sensitive applications, particularly in developing countries.

Emerging markets, particularly in Africa and Latin America, offer a glimmer of hope. Growing interest in renewable energy in these regions could open new avenues for Chinese exporters. Still, financing hurdles and infrastructure challenges may temper the pace of adoption.

Domestically, China appears to be recalibrating its strategy—shifting from capacity growth to innovation and grid reliability. Recent policy guidance emphasizes the development of next-generation storage solutions, such as solid-state and advanced flow batteries, which could enable Chinese firms to maintain a technological edge in high-end global markets.